Tax-Benefi t Systems in Europe and the US:Between Equity and Effi ciency

Whether observed differences in redistributive policies across countries are the result ofdifferences in social preferences or efficiency constraints is an important question that pavesthe debate about the optimality of welfare regimes. To shed new light on this question, weestimate labor supply elasticities on microdata and adopt an inverted optimal tax approach tocharacterize the redistributive preferences embodied in the welfare systems of 17 EUcountries and the US. Implicit social welfare functions are broadly compatible with the fictionof an optimizing Paretian social planner. Some exceptions due to generous demogranttransfers are consistent with the ignorance of behavioral responses by some Europeangovernments and are partly corrected by recent policy developments. Heterogeneity inleisure-consumption preferences somewhat affect the international comparison in degrees ofrevealed inequality aversion, but differences in social preferences are significant onlybetween broad groups of countries....